BLOG

Exceedra Byte: Revenue Management Approaches

TRADE

This week on our vlog series Exceedra Byte, Tom Driver, Exceedra Senior Director Global Professional Services, walks us through two broad revenue management approaches and explores how you can deliver true growth by setting up and running a commercially led revenue management team.

In this episode we discuss two revenue management approaches – the analytical / finance led approach and the commercial led approach. Both approaches have their positives and negatives.

FINANCE LED APPROACH

The finance led approach tends to be characterized by looking at the world as it is today. This is done through P&L and statistical analysis that goes on to frame the strategy. The approach tends to deal with large, set pieces of work that are looking at a certain hypothesis or origin of an issue. It is certainly not looking at the shopper or consumer.

The outcome is generally a smaller, more profitable plan. Or in the worst cases, a bigger more profitable plan that bears no relation to market reality and does not consider execution. Often the large set pieces of work involve a third-party consultancy where costs will rocket.

The analytical approach has strong and compelling evidence that appeals to senior managers. It puts science into strategy and could be exactly the right approach if the business needs to be rebased.

However, it may lack the actual commercial reality. These approaches are divorced from the negotiations currently on-going between the sales team and their customers. And the approach almost always ignores the shopper.

COMMERCIAL LED APPROACH

The commercial led approach is where commercial people are running the function, generally from a sales background. This approach starts with the market and asks questions of that before looking at P&L analysis. This is a growth mindset approach and is characterized by what the world could be.

The approach is practical, experience-based and supported by insights. The work is less set-piece and more day-to-day where the team uses their influence and relationships across the business to get things done.

The commercial approach is compelling as the chances for a successful execution are high, as the strategies are based on market knowledge. The focus is on the shopper and consumer, where the real profit pools lie.

The approach also necessitates a strong link and influence of the sales team, and it takes into account a win-win scenario for the manufacturer and the retailer.

However, it does have its downsides. Sometimes there are P&Ls built to fit the case and rely too much on gut feel. In the worst cases, the strategies are made to fit the pressures coming from the sales team whereas it should be the other way around.

 

The approach also necessitates a strong link and influence of the sales team, and it takes into account a win-win scenario for the manufacturer and the retailer.

It is no surprise that the most effective teams combine the strengths of both. Where the team is commercially led but is backed up by strong analytical support and rigor.

The reasons it should remain commercial led are the focus on the shopper and consumer, the influence and strong links to the sales team and being based in the realities of the market will result in strategies that can be sold to customers.

The watch out here is using commercial people to undertake the analysis themselves, especially sales. This takes focus and time away from the external and the analysis will fit their own agenda.

The Revenue Management team should also work through a defined model.

revenue management approaches

Firstly, the team should be looking at pricing strategies and ensuring alignment to overall company goals. This will require heavy analytical support. The outcome should be a pricing strategy that works at a portfolio or brand level, and clearly calls out action on outliers. This will help reduce exposure.

Consumer pricing encompasses traditional price and promotional plans with customers. These need to be constantly monitored and updated. This pillar would include price/pack architecture work, evaluating return on investment of promotions and ensuring defendability of visible pricing in the market.

Customer pricing is all about managing risk effectively. This is ensuring the team is clear on average realized price and where in-market exposure lies. It also deals with conditionality of trade terms and should be the ruling voice on back to front margin discussions.

Market insights is very important. This is where elements like category visions and drivers come into the team. A successful revenue management team needs to track pricing against strategic objectives and enable the early spotting of trends.

All of this is underpinned by the business setting this team up for success by giving it a mandate, clear processes and ensuring the decision-making process is both brave and robust.

The team should also have key objectives. The three suggestions below are a good place to start.

KEY OBJECTIVES

1. Build revenue management capabilities & influence

Firstly, ensuring the team is integrated, has clear ownership of the price, promotion, terms, COGS and mix levers. The team must have clear and unambiguous authority.

2. Sort out basics on price, promotions and pack architecture

Secondly, the team should focus on pricing, promotions, and pack architecture. Also, the team should develop a long-term price strategy and clearly show actions against each lever. Simplification is key, which is why it must be a long-term view as moving there will take time.

3. Work to reduce price exposure

Lastly, the team should be looking at reducing pricing exposure. With acquisitions set to continue, defendability will be key. This includes trade terms as well as pricing. This can be across geographies, with a market or across customers.

Stay up to date with Exceedra by TELUS by following us on LinkedIn.

If you want to stay posted on all the latest episodes of Exceedra Byte, be sure to subscribe to our YouTube channel.

SUBSCRIBE
Exceedra Byte is a weekly vlog series where we take complex trade and revenue growth management topics and break them down into byte-sized pieces. Stay tuned every Thursday for new episodes.

Watch the previous episode of Exceedra Byte – Customer Metrics

RELATED ARTICLES

Let us show you how the right investment provides the right results.

REQUEST A DEMO